Multiple Important Unknowns Remain for Auto ROO in USMCA, Customs Company Says
The draft regulations for auto rules of origin that have been circulating suggest that the rules won't be as flexible or practical as automakers would like, said David Bause, a project manager at MIC Customs Solutions. Bause, who spoke about the new NAFTA on a webinar April 9, used to be a customs manager for General Motors. Bause said stakeholders don't even know what the date of entry into force will be, or if the uniform regulations will be released by then. He said, “Logically one would think the earliest EIF is July 1 at this point, but from what we’re hearing, the U.S. government is still talking about June. Not sure that is technically possible.”
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He said if the U.S.-Mexico-Canada Agreement is in force in the summer, the government may allow companies to claim the benefits from that day without having certificates of origin in hand, as long as they can verify origin by the end of December. “This is not official, this is just what we’re hearing,” he added.
The auto industry really wants to see rules on how core parts will be treated in determining whether a vehicle meets regional value content standards. Although there is text in the treaty that suggests each of seven core parts would have to meet RVC standards of varying levels, Bause said no company would choose to qualify that way, because even one category not meeting the RVC would mean the entire car or truck would not get the duty-free benefit.
The companies will be allowed to average RVC across core parts, but Bause said the text is “very, very thin” in describing how that can be done.
“Is it per plant? Per vehicle class, per territory?” He said that some staffers at the Office of the U.S. Trade Representative have said companies will be allowed to average across Canada, Mexico and the U.S. “That would be the most useful, in our opinion,” he said. He asked: If a core part, such as an engine, meets the regional value content, will the components in that engine be treated as originating? In other words, will roll up officially be allowed?
Optimally, companies would be able to rely on newly created tariff numbers for parts that they could identify as Mexican or Canadian or from the U.S. But he said in the draft rules, the HTS numbers were too broad -- they cover both components used in core assemblies and in other parts of the car.
“It's questionable whether the HTS numbers that were published are even accurate,” he said. He said the numbers are certainly debatable, at least in some instances.
At least in the case of regional value content, customs compliance staff are used to working with the issue. The USMCA will require regional steel and aluminum, something that was never measured before. Will the Hondas and Fords of the world be able to report raw steel and aluminum purchases for North America to hit the number? Or will they have to go to suppliers to find out where they source their metals? In the draft rules where it talks about steel and aluminum, there are Harmonized Tariff System automotive component headings, “which in our opinion, did not clarify -- in fact, it did the opposite.”
Then, there's the question of labor value content, “which is particularly difficult,” Bause said. Customs compliance staff probably wouldn't know what wages the assembly line workers are paid, much less how much engineering or information technology staff could be attributed to a particular engine or stamping. So, he said, as original equipment manufacturers send solicitations to suppliers, they may just leave that question blank.
In most rules for USMCA, light trucks and passenger vehicles are grouped together and heavy trucks are separate. But for labor value content, it's light trucks and heavy trucks that are grouped together, he said.
Companies are given flexibility on how to calculate the labor value -- across all cars in a plant, across all passenger vehicles assembled in a country, across all light trucks assembled in a country. They can calculate by the previous calendar year or the fiscal year, or even year to date. But whatever method they choose, they have to submit that to customs administration in all three countries 10 days before the beginning of the calendar year.
“The hope was they would allow flexibility; you could use the different allowed categories and bases over the course of that period for most optimal” way of averaging, he said.
He said he's not sure how it will work with USMCA likely to go into effect in mid-2020. Will it always look back from the middle of the year? He said, “We'd like to get on a calendar year blanket period at some point. Hopefully the regs will clarify.”
Bause said that USTR thought it was doing the industry a favor by not mandating a specific form for rules of origin, but as a result, suppliers are going to get solicitations in different forms from different car companies, and that will cause headaches.
One of the webcast attendees asked what agency would audit labor value or steel and aluminum content. He said he doesn't know, but said it's a good question. “That’s not a traditional Customs function,” he said.